Wisconsin governor set to deliver steep budget cuts

* No sign yet of missing legislators

* Governor says layoffs loom if plan not passed

By David Bailey

MADISON, Wis., March 1 (Reuters) - Wisconsin Republican Governor Scott Walker was expected to deliver a budget proposal on Tuesday that would cut state spending and includes a contentious move to reduce the rights of public sector labor unions.

Walker's address, scheduled for 4 p.m./2100 GMT, comes amid two weeks of protests by union supporters at the Capitol Building. The plan has been stalled since Feb. 17 when 14 Democratic state senators fled the state so they would not have to vote on Walker's plan.

Walker ordered the absent Senate Democrats to return to Wisconsin on Tuesday and vote on his proposal. If they do not, he said, the state would miss out on a $165 million debt restructuring and be forced to lay off workers.

As of early morning Tuesday, there was no indication any of the absent Democrats had returned.

What began as a relatively small dispute in a Midwestern state has mushroomed into a national confrontation between Democrats, Republicans and public workers unions with President Barack Obama adding his support on Monday to the public employees.

The governor's proposal would cut spending for local communities, schools and other programs over two years in order to close a $3.6 billion projected budget deficit.

It upset public sector employees because it would require them to pay more for pensions and healthcare, strip some of their unions of bargaining rights except for wages up to the rate of inflation, and require yearly union recertification votes.

Republicans hold majorities in both Wisconsin's Assembly and Senate. The measures, included in a bond restructuring to fix a current fiscal year deficit, have passed the Assembly, but stalled in the Senate because 14 Democratic members fled the state in order to stall a vote on it.

Protesters supporting unionized state workers have occupied the Capitol Building for two weeks and a rally on Saturday drew more than 70,000 people to the grounds, the biggest demonstration in Madison since the Vietnam War.

Other states are considering tactics similar to Wisconsin's to cut their deficits. In Ohio, thousands of protesters converged on the state capital as legislators considered a bill to curtail collective bargaining rights for public workers and eliminate their right to strike. Republican supporters the bill will give local governments flexibility and reduce the state's two-year budget deficit of about $8 billion.

The Wisconsin State Employees Union on Monday filed an unfair labor practices complaint against Walker and Public Policy Polling said a poll suggested he would lose to his Democratic opponent if the 2010 election were held now.

Walker has said his two-year state budget will cut $1 billion from funding to local governments and schools. There has been speculation he would send layoff notices to more than 1,000 state workers if no progress was made soon.

Under Walker's proposal, some $165 million of Wisconsin's general obligation bonds would be restructured and that would push debt service payments out 10 years. (Reporting by David Bailey and Stefanie Carano; Editing by Jerry Norton and Bill Trott)